PPF Flashcards
What does a PPF curve show?
- Maximum possible production of 2 goods/services with given factors of production.
- The various combinations of 2 goods/services that can be produced with given factors of production.
What can the shape of a PPF tell us?
The opportunity cost of 2 different producing goods and services.
Where can a firm produce in relation to the PPF?
- Inside the PPF
- On the PPF
NOT BEYOND THE PPF
What does a movement along a PPF curve show?
A reallocation of resources to produce more of one of the goods/services and less of the other.
What is the law of increasing opportunity cost?
The more of good x that is produced the greater amount of good y that has to be given up to produce that level of output, in relation to previous increases of output.
Why?
As you near complete production of good x, the factors of production are more suited to produce good y so the opportunity cost becomes greater.
What does it mean to be on the PPF curve?
Productive efficiency
What is productive efficiency?
Maximum use of factors of production.
What dos it mean to be inside of the PPF?
Productive inefficiency
What is productive inefficiency?
Factors of production are not being used to their best and either unemployment or waste of factors of production is occuring.
What does it mean to be outside of the PPF?
Impossible level of output to be obtained with the current factors of production.
What is pareto efficiency?
Anywhere on the PPF curve because any movement along the PPF curve leads to some people becoming better off whilst some become worse off because those that like good x lose out when production of good y is increased.
How do you move along the PPF curve?
By reallocating resources.
How can the PPF curve be shifted out?
By increasing the quality and/or the quantity of the factors of production.
